1. Suppose that a representative individual has the following utility function U(x,y) = xy® The price of good x is Php 40 and the price of good y is Php 20. The individual's income is Php 160. a. Calculate the uncompensated own-price elasticity of demand for good x and identify if it is price elastic, inelastic, or unit elastic. b. Calculate the uncompensated cross-price elasticity of demand for good x with respect to the price of good y and interpret your results

1. Suppose that a representative individual has the following utility function U(x,y) = xy® The price of good x is Php 40 and the price of good y is Php 20. The individual's income is Php 160. a. Calculate the uncompensated own-price elasticity of demand for good x and identify if it is price elastic, inelastic, or unit elastic. b. Calculate the uncompensated cross-price elasticity of demand for good x with respect to the price of good y and interpret your results

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Suppose that a representative individual has the following utility function U(x, y) = xªyß The price of good x is Php 40 and the price of good y is Php 20. The individual's income is Php 160. a. Calculate the income elasticity of demand for good x. Is good x a normal or an inferior good? b. Calculate the compensated cross-price elasticity of demand for good x with respect to the price of good y and interpret your result.